A deferred income annuity (DIA) is a type of annuity contract that provides a guaranteed stream of income at a future date, typically during retirement. Here's how it works:
Accumulation Phase: During the accumulation phase, you make premium payments to the insurance company. These payments accumulate and grow tax-deferred until the annuity's income payments begin.
Deferral Period: The deferral period is the time between when you purchase the annuity and when the income payments start. The longer the deferral period, the higher the income payments are likely to be.
Income Phase: Once the deferral period ends, the annuity starts providing regular income payments, which can be monthly, quarterly, annually, or in a lump sum. The income payments are guaranteed for the rest of your life or for a specified period, depending on the terms of the annuity contract.
Longevity Protection: Deferred income annuities are designed to provide protection against outliving your assets by offering a guaranteed income stream in retirement.
Inflation Protection: Some DIAs offer options for inflation protection, allowing the income payments to increase over time to help maintain purchasing power.
Tax Considerations: Income from deferred income annuities is generally taxable as ordinary income when received.
It's important to carefully consider the terms and features of a deferred income annuity, as they can vary between insurance companies and annuity products. Consulting with a financial advisor or insurance specialist can help you determine if a deferred income annuity is suitable for your retirement income strategy.